A Bribery Ban Backfires

Steve Chapman

4/29/2012 12:01:00 AM - Steve Chapman

Until 1977, there was no country that criminalized the practice of bribery abroad. But that year, President Jimmy Carter signed a law making the United States the very first. In due course, this measure eliminated corruption from every nation where our corporations operate.

Yes, it did -- right after Carter got a tattoo and a Harley. In fact, bribery remains a way of life in much of the world, including rapidly developing countries where American multinationals need to be. These firms often are forced to choose between following age-old local custom in order to compete and obeying U.S. law, which may leave them high and dry.

That could be the explanation behind the behavior attributed to Wal-Mart in its effort to expand in Mexico. The New York Times reports that the company's internal inquiry found "evidence of widespread bribery" and "suspect payments totaling more than $24 million" -- in apparent violation of the Foreign Corrupt Practices Act.

The scandal hit the world's biggest retailer like a ton of bricks. It lost $10 billion of market value literally overnight. The Justice Department had already launched an investigation, and congressional committees may not be far behind.

If you think this is a case of greedy Americans corrupting innocents abroad, think again. In its annual Corruption Perceptions Index, the watchdog group Transparency International ranks Mexico 100th from the top, out of 183 nations and territories. On a scale of zero ("highly corrupt") to 10 ("very clean"), it gets a score of 3, which I would read as "pretty sleazy." (The U.S. was 24th, at 7.1.)

If you want to reach the Mexican consumer, you may have little choice but to grease some palms. The Times interviewed a former high executive of Wal-Mart de Mexico who offered insight: "Bribes, he explained, accelerated growth. They got zoning maps changed. ... Permits that typically took months to process magically materialized in days. 'What we were buying was time,' he said."

Sure, executives can refuse to pay bribes. But while they get old waiting for permits to clear, they will lose business. They may also get to watch less scrupulous competitors swoop in. Those rivals may not have to fear the possible legal consequences quite so much, if they hail from countries with more permissive standards.

China, for example, didn't get around to passing its law making it a crime to bribe foreign officials until last year. But a spokesman for the British anti-corruption group Global Witness told the South China Morning Post, "It remains unclear whether the Chinese government is serious about prosecuting individuals and companies who have broken the law." Not a sure thing, since China is rated only slightly cleaner than Mexico.

The question is why it's the duty of the U.S. government to dictate business practices in nations with very different business climates. You would think the Justice Department has plenty to do enforcing American laws on American soil without trying to sanitize the rest of the world.

Our idea of appropriate business practices ought to prevail in America, but less developed countries are entitled to do things their own way. If Mexico doesn't police bribery and can't change its economic culture, why should Uncle Sam take on the job?

One effect of the anti-bribery law has been to scare U.S. investment away from corrupt countries. But as one study found, it didn't reduce the overall amount of investment in these locales: Corporations from more tolerant countries were happy to take up the slack.

If other governments were brave and vigilant in fighting graft, there would be no need for American prosecutors to step in. Foreign prosecutors would be happy to issue indictments. It's only in vice-plagued nations that the FCPA makes a difference.

But the difference is not necessarily a positive one. Andrew Brady Spalding, a professor at Chicago-Kent College of Law, says the law often amounts to imposing economic sanctions on particular countries. By deterring American companies from investing in such places, we deprive their citizens of goods and jobs that would improve their lives.

When extortionate officials block Wal-Mart from opening stores in Mexico, ordinary Mexicans suffer. Economic growth is a good thing, even when it's lubricated by graft.

If the goal is to make ourselves feel good, this law is a success. It's a failure only if the point is to actually do good.